Customs, Excise and Gold Tribunal - Bangalore
Afcons Infrastructure Ltd. vs Cce on 22 June, 2005
Equivalent citations: 2005(102)ECC169, 2006(197)ELT247(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. Against Order-in-Original dated 31.10.2002, passed by the Commissioner of Central Excise, Visakhapatnam, these two appeals have been filed and one appeal is by the revenue.
2. The brief facts of the case are as follows:
M/s. Asia Foundations and Constructions Limited, Visakhapatnam (hereinafter known as M/s. AFCONS) are engaged as contractors for specialized civil engineering works. In the course of its business they were given a contract by the Chief Engineer Dry Dock, (CEDD), Visakhapatnam, for carrying out various items civil, electrical and mechanical works for North Dry Dock. The Collector of Central Excise, vide Order-in-Original No. 13/89 dated 2.6.89 held that the structures fabricated by M/s AFCONS, would be classified under "Others" covered by Sub-heading 7308.90 as on 28.2.86. He held that the process of conversion of duty paid iron and steel products such as plates, angles etc., by subjecting them to processes of cutting, welding, revitting etc., into items required for erection amounts to manufacture since the resultant goods have a district name from the raw materials.
3. In his order he demanded an amount of Rs. 1,14,28,688 for the period from 12.1.87 to 5.11.88. M/s. AFCONS appealed against the order of the Collector. Meanwhile, the Department filed a miscellaneous application dated 17.5.93, seeking to change the classification of the Dock Roof Structure.... and dock gates (Caisson and flap gates) from 7308.90 to 8486.00 and 8907.00 respectively. The SCN proposed to demand duty on the part of steel structures and dock gates whereas the miscellaneous application sought to demand duty on steel structure and dock gates in finished conditions. Afcons filed a miscellaneous application that the demand is hit by time bar under Section 11A of the Act, while the SCN is issued on 5.1.89 invoking the larger period.
4. The Tribunal passed final order dated 3.3.97 remanding the matter back to the Commissioner with the remark that there has to be a clear finding by the original authority on the question of marketability, limitation and the classification now canvassed. In the impugned order the Commissioner confirmed a demand of Rs. 85,64,971 under Proviso to Section 11A(1) and Rule 9(1)(2) of the Central Excise Rules. He did not impose any penalty. He held that the gates are fixed to the hinges and that they will not be considered as goods. To that extent he reduced the demand. As regards the excisability of the structural he has agreed with the findings in the earlier Order 3/89 dated 2.6.89. He has also held that the structural or parts thereof are correctly classifiable under heading 7308.90. Both the Revenue and M/s. AFCONS are aggrieved over the impugned order.
5. Revenue's grounds of appeal are as follows:
(i) The Commissioner's finding, that the Dock gates (Caisson gates & flap gates) are fitted on the Hinges and are fixed structures are contradictory to one another. Thus, the Commissioner has erred in holding that the Caisson and flap gates are not goods.
(ii) CESTAT's Final Order 356/03 dated 14.5.2003, holding that the Caisson gates was constructed step by step as part of the dry dock and was not exigible cannot be applied to this case as the present goods are different. The case decided by CEGAT the Caisson gates were constructed at site step by step. In this case the Commissioner has given a finding the Gates are fitted on the hinges.
(iii) In para 12, Commissioner had held that he is in full conformity with the detailed orders passed by his predecessor and for the sake of brevity, no reiteration is required and held that structural and parts thereof are classifiable under Heading 7308. However, in para 15, he concluded that these items cannot be considered as bought and sold and cannot be considered as goods and hence non-excisable. This is apparent contradiction of his own observation in para 12.
(iv) The department has seized 79 items weighing 45 MTs and valued at Rs. 2,70,000. Even though the SCN sought to confiscate the goods, no order in this regard has been made by the Commissioner in respect of such seized goods.
(v) The Show Cause Notice also sought to impose penalty on Shri S.K. Bhatt, Project Manager of M/s. AFCONS, North Dry Dock, Visakhapatnam and Sri. C.V. Dikshith, Commander Works Engineer (Projects), Dry Dock, Naval Base, Visakhapatnam in addition to M/s. AFCONS. No specific order has been given on the issue of imposing penalty on these individuals.
(vi) No penalty was imposed against M/s. AFCONS in the said Adjudication Order. When the Commissioner has confirmed the demand made in the Show Cause Notice, it appears that, he has no option to refrain from imposing penalty does not appear to be correct in the light of Hon'ble Supreme Court's order in the case of Z.B. Nagarkar v. Union of India, wherein the Court has clarified that, imposition of penalty is imperative/mandatory and only the amount of penalty imposable by the Adjudicating Authority is discretionary.
6. The grounds of appeal in respect of AFCONS are as follows:
I. The Commissioner's finding that process of cutting, welding, drilling carried out on the items like steel plates, angles, beams, etc...., purloins, runners amounts to manufacture is not correct. The appellants, rely on the following decisions to substantiate that the above processes do not amount to manufacture • Aruna Industries and Ors. v. CCE, Guntur and Ors., 1986 (25) ELT 58 • CCE, Nagpur v. Wainganga Sahakari Kharkhana, • Eicon Engineering v. CCE, 1999 (107) ELT 337 II. The processes carried out by the appellants are:
(a) Submarine Roof Portal Frame
(i) The design and drawing of the structure is prepared as per required specification.
(ii) The inputs like plates, runners, beams, columns etc. are supplied by CEDD. These are cut to fit in the size of the structure. They are also drilled. The structure is erected by welding and revetting.
(b) Gantry cranes
(i) The beam which is duty paid is fabricated into required length so that the same is fitted with the structure.
(ii) The columns attached to the earth are installed to support beams.
(iii) The beams are welded with the columns.
(iv) The gantry crane is thereafter installed. The crane moves on the wheel.
III. Activity of fabricating parts at customer site is not liable to excise duty. The reliance of the Commissioner in his Order No. 3/89 on Richardson Crudas, 1988 (38) ELT 176 (T) is not applicable as columns were manufactured in their own factory. The CBEC, in 37B order dated 15.1.2002 has clarified "If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods." The Commissioner of Central Excise, has not considered the clarification given by the CBEC.
IV. The Commissioner has classified the items under 7308.90, even though in the miscellaneous application a different classification was sought to be followed (8426 for gantry beam and 8907 for dock gates) V. The above classification cannot be accepted for the following reasons.
a. The department has agreed that the classification is incorrect.
b. Under chapter 7308.90 prior 20.2.98 that all these items are standard items required under household use. None of the articles specified therein pertains to structure or part of structure. The Supreme Court in the case of Rohit Pulp and Paper, , held that "the meaning of the word is judged by the company which it keeps". In view of these it is submitted that the word appearing in the CH 7308.90 will not include the structures and parts thereof. It will only include the articles, which are used in day-to-day in the house.
VI. There is no finding given by the Commissioner on the issue of marketability of submarine roof portal and Gantry beam rail and the decisions of the Hon'ble Apex Court, High Court and Tribunal, relied upon by the appellants that the impugned goods are not marketable are not distinguished.
VII. Submarine Roof Portal Frame and Gantry Crane Beam Rails are immovable structures. Even the Collector in his earlier order has observed the following:
"It would also be clear that the various fabrications produced with the processes like cutting, welding, drilling riveting etc., utilized the inputs like angles, channels plates form the entire structure that is to be erected and as such the structure can be stated to have been produced in knocked down condition; this is also evident from the demarcations given to the various fabricated items".
VIII. The appellant contended that the demand is for the period from January 1987 to November 1988. But the SCN dated 5.1.89 was received on 9.1.89. Therefore, the demand for the period upto January 88 is time barred.
IX. Notification No. 197/87 dated 28.8.87 provides exemption to goods falling under CH 73 provided they are manufactured by a factory belonging to the Central Government and are intended for use by any department of the said Government. In this case the submarine dry dock is meant for the Ministry of Defence, which is a Central Government Department. Although this contention of eligibility to exemption notification was raised, the adjudicating authority has given no finding.
X. M/s. AFCONS relied on the following case laws to support their various contentions.
• CCE v. Elecon Engineering Co. Ltd., 2001 (132) ELT A 89 (SC) • Bajaj Tempo Limited, 1997(95) ELT 212 (MP) • Arum Industries, Visakhapatnam and Ors., 1986 (25) ELT 580 (T) • SAE (I) Ltd., 1988 (36) ELT 613 (T) • Consolidated Chemequip (Mfr.) Corpn., 2000 (117) ELT 729 (T) • Bharat Forge & Press Industries (P) Ltd., • Tata Engineering & Locomotive Ltd., 1997 (89) ELT 463 (Bom) • Steel Authority of India Ltd., 1988 (36) ELT 316 (T) • Tansi Engineering Works, 1996 (88) ELT 407 • VIP Industries Ltd., 1999 (106) ELT 460 (T) • Sonic Electrochem (P) Ltd., 2002 (52) RLT 878 (SC) • Thungabhadra Steel Products Ltd., 1998 (98) ELT 334 (Kar) confirmed by Apex Court in --1998 (101) ELT A139 (SC) • Bhor Industries Ltd., • United Phosphorous Ltd., 2000 (117) ELT 529 (SC) • Metro Tyres Ltd., 2001 (137) ELT 1426 (Tri-Del) confirmed by Apex Court in 2002 (139) ELT A 187 (SC) • Heavy Water Board, 1999 (107) ELT 210 (T) • Vazir Sultan Tobacco Co. Ltd., • Cosmic Dye Chemicals, • Padmini Products, 1989 (43) ELT 195 (SC) • Chemphar Drugs & Liniments, • Mittal Engineering Works (P) Ltd., • Triveni Engineering & Industries Ltd., 2000 (120) ELT 273 (SC) • Quality Steel Tubes (P) Ltd.,
7. Shri S.S. Gupta, learned consultant appeared for M/s. AFCONS and Shri L. Narashimamurthy appeared for the Revenue.
8. We have gone through the submissions of AFCONS and the revenue in respect of the appeals filed by them. The admitted facts are that M/s. AFCONS undertook a work contract with the chief engineer dry dock Visakhapatnam. As far as the present dispute is concerned the items of work are as follows:
1. Submarine dock roof structure Gantry beam Rail and foundations for dock fittings and fixtures.
2. Dock Gates (Caisson and flap) In order to appreciate the issue we are giving the following pictures, which are part of the case records.
9. A perusal of the photos reveal that the items fabricated by M/s. AFCONS are part of submarine dry dock. It has been averred by M/s. AFCONS that the chief engineer dry dock supplied to the appellant finished products namely steel on which excise duty has already been paid for using it in the construction work. The steel consisting of plates, angles and channels were not at any time sold to the appellants. They remained the property of the defence department and were to be used exclusively on the construction work entrusted to the appellants. The steel items of plates, angles and channels were subjected to cutting, punching, riveting, welding etc., so that they could be used in the construction work as specified in the contract. The activities of M/s. AFCONS have resulted in the dry dock roof structure, Gantry beam rail and foundations for dock fittings and fixtures. Let us refer to the clarification given by Board in its 37B order dated 15.1.2002. Para 4 (v) reads as follows;
"If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods."
10. In our view, the items fabricated by M/s. AFCONS have become immovable property as can be clearly seen in the photographs. In other words the portal frames on the roofing and on the sites of the dry dock are steel structures fabricated at site. By no stretch of imagination they can be called as goods. The above items are similar to the ones which are subject matter of the CEGAT decision in Aruna Industries, Visak and Ors. v. Collector of Central Excise, Guntur and Ors., 1986 (25) ELT 580 (T), wherein it is held that making of structural shapes like presses, beams, gudders etc., from raw materials such as plates, channels, angles by cutting drilling, riveting etc., and assembling structural shapes for construction of building or shed, is a fabrication activity and not a manufacturing process. In these cases, even though the identity of the original product is lost no transformation is taking place. The Commissioner in his adjudication order has also not given any finding as regards the marketability of the items.
11. As regards the dock gates (Caisson & flap), the Tribunal in the party's own case has held that Caisson gate of dry dock constructed at site step by step as part of Glider is not marketable as such and not excisable. Of course, the adjudicating authority has also held that the dock gates are not excisable. However, revenue in their appeal has stated that the items in the CEGAT'S decision are different from the present appeal. We are not inclined to accept Revenue's contention. The fact that the Caisson gates are fitted to the hinges cannot make them movable. "Dry dock Caisson" means the floating gate to a dry dock. When the gate is opened Water floods the dry dock so that the ship can enter it. Once the ship is inside the dry dock, the Caisson gate will be closed and the water inside the dry dock would be pumped out. Afterwards the workers can repair the ship. This is the function of dry dock Caisson. What has been dealt with in the CEGAT's order is the same as the present goods.
12. In the landmark case Tunghabadra Steel Products Ltd. v. UOI it has been held that fabrication of Hydraulic gates, hoists, gantry cranes for such gates, penstock pipes for river valley projects/dams, etc., out of duty paid materials would not amount to manufacture. Further, they are not excisable as they are not capable of being sold in the market. In the present case also the Caisson gate and the other structures are specifically meant for the dry dock, which will be a fixed structure and, therefore, the fabricated parts cannot be marketable and in that view they are not excisable. Similarly the Gantry rails as can be seen from the photos are fixed on which the Gantry crane moves. For the same reasons as stated earlier they also cannot be called as goods. In these circumstances, in our view there is no merit in the Revenue's demand at all. Since the appeal is allowable on merits alone we are not going into the issue of limitation. The entire demand is liable to be quashed for the reasons stated above. Hence, there is no need to consider the points raised in Revenue's appeal. Summing up we hold that the items fabricated by M/s. AFCONS are not goods as they are not marketable and also in, view of the fact that they had become part of immovable structure. Hence, the Order-in-Original has no merits. The same is set aside. We also dismiss Revenue's appeal.